Why and how nonprofit investment committees may benefit from an OCIO partnership

Ian Johnson is an institutional portfolio manager (IPM) in the global institutional solutions team at Fidelity Investments. He serves as a member of the investment management team, maintaining a deep knowledge of portfolio philosophy and construction. He also assists portfolio managers and their chief investment officers to help ensure portfolios are managed in accordance with client goals and expectations.

As team lead, Johnson oversees a group of investment directors who support IPMs across all asset classes; the IPMs work closely with their institutional clients. In the Q&A below, Johnson discusses the role played by investment committees at endowments and foundations, best practices and how Fidelity develops solutions for clients at nonprofit organizations.

You are on the investment committee of a nonprofit group and a university endowment. From that seat, what are the main challenges that investment committees encounter?

Investment committees face several challenges in their roles as fiduciaries¹ to their investment portfolios. These committees, including the two that I sit on, include experienced and knowledgeable investment and finance professionals who serve as volunteers. As such, their involvement and interactions vary in terms of the time they can commit to their oversight role. This has been a major driver for many committees to move toward an outsourced chief investment officer² (OCIO) relationship for the day-to-day management of their investments.

For the $100 million college endowment committee I sit on, the move to an OCIO relationship was one we made last year. The committee realized that meeting three times a year was not an effective management approach for the portfolio, even though we had a non-discretionary investment consultant. Another challenge with volunteer investment committees is the inevitable turnover that occurs on the committee and the continuity challenges associated with those changes. In addition, another obstacle these committees face is to make sure these individuals use their knowledge and experience in alignment with the mission of the organization, checking their professional biases to ensure they focus on the best interests of the nonprofit.

How does your role on two investment committees shape your perspective when meeting with, and advising clients and perspective clients?

Being in the same role as my client is extremely valuable to me. It provides me the perspective of what I expect to see from my investment professionals to fulfill my fiduciary duty and helps ensure that I bring those same details to my clients. It also provides me exposure to some amazing peers who inspire and educate me on topics and ideas that I may want to research for my clients and prospective clients.

Do the challenges you see from your seat on investment committees align with those you hear from clients? Are there additional challenges investment committees face? What are some of the best practices for these committees?

While there is alignment between my volunteer role and that of my clients, one thing I have come to realize is that no two investment committees are exactly alike, just like no two institutions are exactly alike. What that has taught me is that to be at my best for my clients, I need to make the effort to understand their mission, goals, and challenges. That will enable me to provide them with customized solutions and services which they should expect from me as their advisor.

To ensure that I become educated and stay educated on my clients, a best practice that we implement is formally reviewing the investment policy statements of each of our clients annually. Part of that review includes providing risk and return characteristics related to the strategic asset allocation of the client. This analysis provides the framework for the discussion on whether that specific allocation still meets the needs of the organization today and into the future.

From an OCIO context, can you describe the process of how you learn about client needs and then develop solutions to meet those needs?

Learning about clients' needs is the first part of every client relationship because it drives the most important part of any solution—the client's strategic asset allocation. Gaining an understanding of those requisites starts with a conversation: Asking questions about their spending needs, liquidity requirements, return objectives, and investment time frame. With those answers, we can construct sample asset allocations with accompanying risk and return analytics that we share with the committee to assess their comfort or discomfort. That, in turn, will allow us to produce a solution that truly aligns with their specific needs.

There is collaboration that goes into developing solutions for E&F clients, both with the clients and within Fidelity Investments^®. Can you discuss how you built your team to best serve clients? How does the research process that underpins investment decisions incorporate views from various teams across Fidelity?

Collaboration is key and, I believe, one of the hallmarks of Fidelity. For our clients, it starts with our team-based investment management approach. Our three OCIO portfolio managers work closely with our imbedded quantitative and risk analysts to manage each of our client's portfolios, combining independent fundamental views with proprietary quantitative models. They utilize insights from across Fidelity, including research from the asset allocation team, quantitative analysts, and fundamental regional and sector analysts to actively position client portfolios. They also use recommendations from our team of manager research analysts to select the underlying managers we incorporate into client portfolios. Leveraging the depth and breadth of Fidelity's resources and our team-based management approach provides our clients with a customized investment solution that strives to meet their specific needs.